Industry rethinks freight cost expectations

Truck rates are causing the industry to reprogram normal expectations.

After rates were pushed higher by the Christmas holiday, the onset of an electronic logging device mandate and winter storms in the Eastern U.S., some sources predicted rates would settle down in January and February. Through mid-January, the hope for declining rates for trucks failed to materialize.

Responding to big demand, monthly average truck rates for refrigerated freight climbed again in December to reach an all-time high, according to the DAT Freight Index.

The monthly national averages for both dry and refrigerated (“reefer”) van rates were the highest of 2017, according to the index. The average reefer rate for December was $2.46 per mile, 3 cents higher than the November average and an all-time high, according to the release.

The trend continued in January. Truck rates as high as $10,000 to New York from California’s Imperial Valley were reported by the U.S. Department of Agriculture Jan. 16. At the same time a year ago, that trip reportedly cost $6,000 to $6,200. Two years ago, the rates were $5,800 to $6,000 to New York.

Patty Willkie, branch chief for supply reports for the USDA’s Agricultural Marketing Service Market News division, said the agency had to reprogram its database to account for recent spikes in truck rates.

“USDA had to change its database that we put all the information to generate the truck rate reports,” Willkie said. “When it was set up 40 years ago, it only allowed 4 digits for the number, so we had to have them go back in and amend it do we can put the fifth digit to add those $10,000 rates.

Rates for Mexican produce imported through Nogales, Ariz., were also up Jan. 16 to some destinations under driver shortage conditions. The rate from Nogales to Los Angeles was reported at $1,800 to $2,000 per load, up 6% from the previous week and 50% higher than the $1,200 rate the same time last year and two years ago.

In Florida, the USDA reported rates from central and south Florida to Baltimore were up 30% on Jan. 16 compared with the previous week, with rates $2,700-$2,900, At the same time in 2017, that was $1,900 to $2,200, and $2,100 to $2,200 two years ago.

Industry sources said the higher transportation costs and transit times were helping demand for Florida produce, compared to imports from Mexico.

Mike Rueda, dispatcher with Lake Hamilton Transportation Inc, Lake Hamilton, Fla., said as long as Florida has the product, shippers can compete with Mexico on the basis and transportation costs to Eastern markets.

Currently, he said Florida produce shippers have the freight cost advantage to markets such as the Carolinas, Virginia, Washington, D.C., and Eastern seaboard markets south of Philadelphia.

Cauthen said that the delay in the electronic logging device mandate for produce haulers until March 18 may only put off the problems with the rule and make conditions worse.

“Everybody is trying to figure this thing out and I think it will be a disaster,” he said.

While most of his firm’s business is to the Carolinas, long-haul routes into Maryland and beyond will have to be changed to account for the logging device regulations. “The consequences will be reflected in the delivered costs of the product, because there is not going to be enough trucks — that’s a given.”

Outlook

High truck rates last year and coming into January have resulted from a combination of factors, said Ken Gilliland, director of international trade and transportation with Western Growers. A stronger economy and better demand for transportation services in all sectors and scarce drivers have contributed to the shortage. Events like last year’s hurricanes in Texas and Florida have played a role, in addition to winter storms and the influence of the holidays.

“It was a perfect setup, with all that impacting the transportation issues,” he said.

Gilliland believes truck rates will settle down in coming weeks. From a policy perspective, the produce industry will voice their concerns about the electronic logging device mandate, the possibility of another extension and whether the hours of service rule needs to change.

“It really comes down to the hours of service rule, and do we need to try to get that Federal Motor Carriers Safety Administration to rethink that,” he said, referring to the 11-hour drive time and the 14-hour maximum for on-duty hours.

“The optimistic view is that (rates) will settle down but how much is the big question,” he said.